Refining, Marketing Reps Testify Before Senate Committee

Wyden, others asks why retail prices are high amid domestic oil boom

July 17, 2013

Ron Wyden

WASHINGTON -- Lawmakers questioned representatives of oil producers and refiners--as well as representatives of petroleum marketers and motorists--seeking an explanation for a rise in gasoline prices at the pump amid a boom in U.S. oil production, reported Bloomberg.

Senators at an Energy & Natural Resources Committee hearing on Tuesday complained that fuel exports and refinery shutdowns for maintenance cause regional price surges, while the head of Valero Energy Corp. said local prices reflect global shifts in crude markets and blamed higher costs on the Renewable Fuel Standard (RFS), which mandates ethanol use.

"Our people want to know why the flood of new domestic crude oil isn't lowering prices at the pump," said Senator Ron Wyden (D-Ore.), committee chairman. "There is no question that the lower oil costs are not getting through to Americans' wallets."

Advances in drilling technology, including hydraulic fracturing, has revived U.S. oil production in states such as North Dakota and Texas, which reached 7.4 million barrels a day in April, a two-decade high, according to the report, citing the U.S. Energy Information Administration (EIA).

Regular gasoline at gas stations rose 14.7 cents in the past week to an average $3.639 a gallon as of Monday, the highest since June 10, EIA said. Fuel demand is typically strongest from the last weekend in May to the U.S. Labor Day weekend in early September, the prime U.S. vacation period, the report said.

In recent months, planned refinery outages or emergency shutdowns for maintenance in the West and Midwest triggered sharp increases in gasoline prices regionally, not tied to the global price of crude oil, lawmakers said.

"The fact that this price spike can happen without real supply and demand disruptions is disturbing," Sen. Maria Cantwell (D-Wash.), said at the hearing.

EIA head Adam Sieminski said that supply and demand is the main determinant of pump prices. The boom in U.S. oil production is helping to hold down global oil prices, and so is benefiting American consumers, Sieminski testified. Greater U.S. exports would actually help keep domestic prices lower by enhancing the global trend, he added.

The argument failed to sway Wyden, who said the prospect of greater exports is a reason he is skeptical of the proposed Keystone XL pipeline, which would carry oil sands from Alberta, Canada, to refineries along the U.S. Gulf of Mexico.

"There are a host of questions with regards to Keystone, foremost of which is that most of the production is going to be exported," Wyden said after the hearing.

While lawmakers questioned the functioning of the U.S. gasoline market, industry representatives said those prices reflect movements in international crude-oil markets.

"These are commodities and they work in a global market," Valero CEO William Klesse said in an interview with the news agency after he testified. While refinery outages can cause prices to rise, the gain doesn't last long, as refiners are quick to ship in fuel to take advantage of that premium, he said: "It's all about supply and demand, and free markets."

Instead of focusing on refiners' margins, Congress should rework the RFS, mandating the use of ethanol, because a drop in fuel use will cause the share of ethanol to exceed the 10% that can be used safely by all vehicles, he said.

"The oil supply picture has changed, the basis of the original legislation has changed, the RFS should be repealed and new legislation developed," Klesse testified. Wyden pledged to have a separate hearing to examine issues with the RFS.

Sen. Lisa Murkowski (R-Alaska), the lead Republican on the Senate Energy & Natural Resources Committee, discussed the significant benefits of rising American oil production. In her opening statement, she highlighted high fuel costs in Alaska. She spoke of the need to increase oil production on federal lands, which has fallen in each of the past two years, and suggested Alaska as the perfect place for that to happen.

Murkowski also called for the federal government to take additional steps to lower gasoline prices.

"I continue to believe that we should take every step possible to reduce and stabilize fuel prices for American families and businesses. That will include increasing production on federal lands, increasing the efficiency of our vehicles, and increasing the use of alternatives," Murkowski said. "It will mean rejecting, rather than seeking, punitive tax hikes. It will require the timely approval of needed projects--including the Keystone XL pipeline--and the prompt adjustment of any regulation that comes in conflict with our desire for abundant and affordable energy."

Murkowski asked the panel of six witnesses whether they shared her belief that rising domestic oil production was having a positive impact on crude oil prices, which constitute the largest component of prices at the pump. None of the witnesses spoke up to disagree.

Petroleum Marketers Association of America (PMAA) president Dan Gilligan testified, "Petroleum marketing companies do not benefit from high gasoline or diesel prices. Because they operate in such a transparently competitive environment, higher wholesale prices must be absorbed by retailers until street prices catch up. Thus, rising gasoline prices not only burden motorists, but petroleum marketers as well. In order to remain competitive, retailers usually offer the lowest price for gasoline to generate volumes sold and customer traffic inside the convenience store. When gasoline prices are unusually high, customers often reduce their purchases of convenience items."

Chris Plaushin, director of federal relations for AAA, said, "Unfortunately, there is no 'silver-bullet' solution to high prices or to market volatility. Rather it will take a portfolio of polices to best mitigate the periodic uncertainty of gas prices and their impact on consumers. The federal government should adopt a national energy policy which combines increased production, the efficient use of traditional and alternative fuels and the elimination of lengthy roadblocks to the development of new sources of energy. … Going forward, from AAA’s perspective, such a plan should strive to seek an effective balance between our need for mobility and independence and our need for increased energy efficiency."

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